ASHLAND CITY COUNCILMonday, March 20, 2017Siskiyou Room, 51 Winburn Way

I. Public InputSusan Hall/210 East Nevada Street/Read from a document submitted into the record regarding the East Nevada Street Bridge. She addressed the Transportation Commission’s recommendation and wanted to know the Public Works Director’s authority regarding that recommendation.

Mayor Stromberg responded he would work with the City Attorney and Interim City Administrator to draft a response to her inquiries and send it out to everyone involved.

Huelz Gutcheon/2253 Hwy 99/Spoke on the need to have City staff and people on the Council college educated on the renewable energy industry.

Management Analyst Ann Seltzer received notice from the League of Oregon Cities (LOC) asking the City of Ashland to provide testimony Wednesday morning, March 22, 2017 on proposed legislation for the Transient Occupancy Tax (TOT) in House Bill (HB) 2768. A list of priorities went before Council July 19, 2016 and was delayed due to time constraints. The item did not come back on a subsequent agenda.

Councilor Slattery did not think Council should be asked to support the matter either way. He did not want to participate in the discussion. The industry had not been asked for their input, it was not on an agenda, and the public needed the opportunity to provide comment. Ms. Seltzer clarified Representative Pam Marsh met with the Oregon Lodging Association the week before on the issue.

Interim City Administrator John Karns noted the legislation would allow his position to look at funding options that would enhance things for the City currently not under his purview. Councilor Slattery declared a potential conflict of interest and chose to remain in the room for the discussion. Ms. Seltzer reviewed the proposed changes to the legislation. Council wanted more time to review the matter. Mayor Stromberg would try to add it to an agenda for public input.

III. Discussion of Electric rate design
Mark Holden, director of IT/Electric Utility explained the rate design was the result of the Cost of Service (COS) study. COS studies used a methodology that established true costs to serve a customer class, and fairly assigned that cost to the pertaining class. It eliminated cross-subsidizations of classes, where one class subsidized another.

Dawn Lund, vice president of Utility Financial Solutions (UFS) explained there were three phases to the COS process, the financial projection, the COS study, and the rate design. She provided a presentation that included:

Cost of service is:

A method to equitably allocate the revenue requirements of the utility among the various customer classes of service

As rate making gets more complicated in the industry, it is important to have a document based on fair and defendable methodologies

COS Process – Three Studies:

Financial projection – DONE

COS - DONE

For the COS study, UFS took the revenue requirements of the utility, the costs to service all the City’s customers, and allocated it based on certain drivers to create an equitable and fair rate structure, while identifying any cross-subsidizations. It was important to move slowly to the recommended rate structure to avoid rate shock.

Rate design – using the COS as a base then adding Board/Council/Community social and political objectives to develop the rate design and move slowly toward the goals

Ms. Lund created a rate structure for three consecutive years, slowly and methodically moving forward and avoiding high rate increases.

Power Supply Change Bonneville Power Administration (BPA)

2018 – 6%

2019 – 1%

2020 – 3%

2021 – 3%

Transmission Change

2018 – 4%

2019 – 1%

2020 – 3%

2021 – 3%

Summary without Rate Changes - table
One of the key components UFS looked at as a COS based indicator was the City’s operating income that presently showed a loss over the projected five year period without any rate changes. Operating at a loss resulted in decreasing cash balances.

Summary with Recommended Rate Track – table
The rate track mirrored the City’s increases in power supply. The three-year rate design showed the first year having a 6.9% increase, the second year designed at 4.3%, and 2.9% in the third year due to changes since the October 2016 presentation.

The City could consider flattening out the rates if it had a better cash balance. The City’s minimum cash on hand for 71 days should be $3,200,000. Currently, the cash balance was low. USF was trying to stabilize and build that amount over time. Lowering the rate adjustment in the first year would be detrimental to the cash balance. Front loading the rate design helped build the cash balance and mirrored the power supply pricing increase the City was receiving. Waiting a year was revenue the City lost by not passing it to the customer and resulted in the City paying those expenses instead. Ms. Lund recommended implementing the new rate design July 1, 2017.

The typical minimum recommended cash balance was 90 to 120 days. Since the City’s debt was low in this service, 71 days was appropriate. When the five-year rate track or three year rate design concluded, the City would have to continue with rate increases to meet yearly cost changes.
Ms. Lund went on to explain approximately 5% of the 6.9% increase was power supply. The remaining 1.9% included other changes and costs and was lower than the current inflation rate of 2.7%. The 2.75% from years 2-5 was not just inflation but also a path to build operating income to the correct level. It would not meet the recommended minimum cash balance at that time. Achieving that amount would take longer.

The COS study took the customer usage pattern and other key drivers to develop the perfect rate. Customer usage patterns changed every year and the rate design accounted for those fluctuations. USF used a 2% bandwidth, either direction, in the rate design to move the customer base slowly towards cost of service. Two rate percentages in the rate design were slightly higher than the other customer rate structures. The largest rate revenue gatherers consisted of the Residential Class, the Commercial Single Phase, and the Commercial Three Phase. The cost of service results for those classes was 9.5%. In general, the higher revenue rate classes were within the cost to serve. The smaller rate classes could skew the rate results in a COS study.

To reach the minimum cash balance or $3,200,000, Ms. Lund looked at five risk areas to the utility. One was operations and maintenance (O&M) expenses. Another was power supply that was 60%-80% of the O&M budget. She also looked at the City’s historical rate, debt service payment, and the five-year capital plan.

COS Rates (Used as a Guide to Design Rates)

Customer Class

Current Average Customer Charge

COS Customer Charge

Demand

Energy

Residential Single-Phase

$

9.62

$

14.09

$

-

$

0.0765

Seasonal Residential Single

9.62

16.50

-

0.0909

Telecommunications

17.23

19.45

-

0.0834

Commercial Service Single Phase

20.29

43.46

14.25

0.0393

Commercial Service Three Phase

49.95

103.90

12.86

0.0394

Governmental Service Single Phase

17.23

51.68

13.30

0.0394

Governmental Service Three Phase

101.01

155.98

14.58

0.0394

Municipal Service Single Phase

18.79

58.97

16.04

0.0392

Municipal Service Three Phase

54.72

127.75

14.02

0.0394

Governmental Large Service

2,639.36

1,635.79

13.96

0.0385

Ms. Lund explained that customer classes would slowly move from the current average customer charge to the COS customer charge without causing rate shock to the customer base. The three-year rate design would generate an additional revenue increase of 6.9% in the first year. The second year would generate 4.3% and in the third year, 2.9%.

Rate increases for the Residential Single Phase showed customers currently paying $9.62 for the monthly facilities charge. With the rate design, that would increase Year 1 to $11.00, Year 2 to $12.50, and Year 3, $14.00. The rate design retained the Energy Conservation pricing signal that charged customer use as well. The average residential customer used approximately 750 kilowatt-hours that resulted in a $4.74 monthly change in their bill. In the second year rate design, they would encounter a $3.00 change and in the third year, a $2.23 monthly increase.

Councilor Lemhouse arrived at 6:40 p.m.

The rate design moved the City to a place that covered the fixed cost regardless of the electricity used. It also reduced cross subsidization currently happening with the rates. The low use customer would encounter a higher increase due to the cost to serve and that was why the rate needed to change slowly. Low-income users were not the same as low use customers. Nationally, low-income usage tended to be higher due to the lack of energy efficiencies other customers had. A fixed component in rates would actually help low-income customers.

Rate increases for the Commercial Service Three Phase increased the monthly facilities charge from $34.47 to $37.00 in the first year, then $40.00 in the second year and $45.00 in the third year. It also increased the demand component. Demand was the rate the energy passed through the meter. Utilities measured meters for industrial and commercial customers. Kilowatt-hours measured how long it passed through the meter.

The rate structure for Government/Municipal Single Phase currently showed a declining rate structure. The rate design would correct that by increasing the rate Year 1 from $17.23 to $18.50. Year 2 would increase the amount to $21.00 and Year 3, $23.00. Government Large Service kept the rate structure flat at $2,639.36 for all three years.

Changing the rate structure to 5% increases each year for three years would not adequately respond to the cost increase happening in the first year.

City Attorney Dave Lohman clarified discouraging high use of electricity was a good idea in regards to decreasing fossil fuel energy and would have weight if the community got most of its electricity from fossil fuels. However, the City received over 90% of its energy from non-fossil fuels. The inclining block rate did not counter the effort to use fewer fossil fuels due to the City’s use of hydropower.

Council directed staff to bring the rate study to a future Council meeting for discussion and action.

IV. Discussion of Team Ashland
Interim City Administrator John Karns explained Council would choose two volunteers each from a pool of eighteen residents for Team Ashland. The goal was educating and training a group of residents as a resource for community leadership. Council supported establishing Team Ashland.